FERC Will Impose Reforms If PJM Fails To Adopt Changes By September, Chairman Warns

By Ethan Howland of UtilityDive

The PJM Interconnection has until the end of September to agree to governance and stakeholder reforms or the Federal Energy Regulatory Commission will impose them, the agency’s chairman, Laura Swett, said Thursday.

“PJM is facing a grave legitimacy crisis,” Swett said at a technical conference FERC held on the grid operator’s governance issues. “Some transmission owners are openly discussing leaving the RTO altogether. Put plainly, market participants have lost confidence in PJM’s decision-making abilities.”

With PJM failing to attract significant new generation in its last two capacity auctions, the grid operator is ready for major changes in the way it operates, according to its new President and CEO David Mills, who officially took over the role in May after several months as interim leader.

“We are fully committed to rise to the challenge,” including capacity market reform, Mills said.

Potential reforms discussed at the meeting include increased board independence, a formal role for states at PJM, and giving states the right to file proposals at FERC — called “filing rights” — while also expanding PJM’s filing rights.

After taking post-conference comments, FERC intends to hold a dispute resolution forum in September with PJM stakeholders to develop a governance reform package, according to Swett. If an agreement isn’t reached by the end of that month, FERC will impose its own reforms on PJM, she said.

Capacity market exposes governance weaknesses

The technical conference comes about two years after capacity prices spiked in PJM as rising demand from data centers outpaced any increase in power supplies on PJM’s system, which spans 13 Mid-Atlantic and Midwest states and the District of Columbia. That price spike led to rate increases of 20% or more for some utilities and sparked intense interest from governors and policymakers.

PJM’s struggles in responding to the rapid shift in its supply-demand balance intensified governance problems that had been festering for years, Jodi Moskowitz, PSEG’s vice president regulatory — law, deputy general counsel and RTO strategy officer, said at the meeting.

Two problems highlighted at the meeting were the ability of PJM members to effectively fire the grid operator’s board members as well as its stakeholder process, which can be long and end without concrete results.

PJM uses a sector-weighted voting system in its stakeholder process, with a two-thirds majority of a sector-weighted vote required for a measure to pass. Under the system, members are divided into five categories — electric distributor, end-use customer, generation owner, other supplier and transmission owner.

One effect of the voting system is that two sectors can join up to block a measure they don’t like, which has happened repeatedly, especially on contentious issues, the RTO Governance Research Network said in comments filed at FERC.

During the meeting, representatives for American Electric Power and others said stakeholders should have an advisory role, like the one used by the Midcontinent Independent System Operator. Under that process, PJM’s board would get input from stakeholders, but final decisions would rest with the board.

Currently PJM members run the grid operator’s stakeholder process, which can lead to priorities getting offtrack, according to Asim Haque, PJM executive vice president, governmental and member services.

PJM’s failure to use authorities that it has and its failure to engage with states reflects the organization’s culture, according to FERC Commissioner David LaCerte.

“This is a cultural quagmire that they’ve developed by eroding the board in the past and creating this fear of [board members] being terminated to where they’re not using their authorities,” LaCerte said “They’re not engaging with the states because they don’t want to get out of line with what the stakeholders want.”

The solution appears to be making the stakeholder process advisory, LaCerte said.

“I don’t think we can do business as usual,” Haque said.